3.1 introduction to finance

Question 1

define capital

Answer 1

the money invested into a business and is used to purchase a range of assess including machinery and stocks

Question 2

why does a business need capital (4 reasons)?

Answer 2

1. to start up or to expand the business
2. to pay for its day-to-day expenses such as fuel and labour costs
3. to provide a reward for the owners for taking the risk in starting the business
4. to pay taxes to governments and other authorities

Question 3

what is a statement of financial position (balance sheet)?

Answer 3

a financial statement that records the assets (possessions) and liabilities (debts) of a business on a particular day at the end of an accounting period. it is also known as a statement of financial position

Question 4

what is a statement of profit or loss?

Answer 4

a financial statement showing a business’s sales revenue over a trading period and all the relevant costs incurred to generate that revenue

Question 5

define revenue expenditure

Answer 5

spending assets that are used up in a relatively short period of time

Question 6

define capital expenditure

Answer 6

spending on non-current assets that will be used by the business for a long period of time